Osborne braced for IMF verdict on UK economy

George Osborne is braced for the International Monetary Fund's verdict on
Britain's economic prospects amid speculation it will urge him to change
course.

The Chancellor has insisted that balancing the books remains vital to the country's long-term recovery, and highlighted measures to boost the housing market and lending to business.Photo: AFP/Getty Images

On Wednesday, the IMF presents its annual healthcheck on the UK and the international body is expected to suggest that deficit reduction should be slowed amid anaemic growth. The “Article IV” report is expected to recommend Mr Osborne change his plans and borrow more to invest in infrastructure or cut taxes.

Previously, the IMF was among the strongest backers of the Chancellor's economic strategy, but has gradually changed its tone in response to dwindling growth forecasts.

Last month, the IMF cut its UK growth forecast for this year from 1pc to 0.7pc. While the organisation's head, Christine Lagarde, has insisted she still supports the Government's policy, she has said that "should growth be particularly low... there should be consideration to adjusting by way of slowing the pace".

David Lipton, the first deputy managing director who will be presenting the report on Wednesday, also intervened, saying: “Our view is the pace of consolidation ought to be reconsidered.” Labour will no doubt claim today's proposals are an endorsement of its strategy.

If the IMF were to recommend a putting the brakes on austerity, such a conclusion would be seized on by Labour's Ed Balls, who has consistently condemned the coalition for going "too far, too fast".

However, Mr Osborne and other senior coalition figures stress that the Government has already been flexible over deficit reduction targets.

The Chancellor has insisted that balancing the books remains vital to the country's long-term recovery, and highlighted measures to boost the housing market and lending to business.

Last week, the Chancellor pre-empted the IMF’s attack by emphatically pledging not to change course, saying: “We will stick with our approach.”

Since then, the economic data have strengthened the Chancellor’s hand. The UK has avoided a triple-dip recession, and the recovery appears to be gathering steam. Stock markets are also soaring.

In words that will underline his status as a monetary activist and fuel speculation that he will try to relaunch quantitative easing (QE) when he arrives in the UK, Mr Carney applauded Japan’s “bold policy experiment” to boost dramatically its own QE programme.

He said: “Europe can draw lessons from Japan on the dangers of half measures... Europe remains in recession. Deep challenges persist in its financial system. Without sustained and significant reforms, a decade of stagnation threatens.”